Bankruptcy Timeline

You are prohibited from receiving a discharge
under Chapter 7 if you received a discharge in a
bankruptcy which was filed within the last 6
years. A discharge may still be granted if the
prior bankruptcy was under Chapter 12 or 13 and paid
100% of allowed unsecured claims, or paid at least
70% allowed unsecured claims and the plan was
proposed in good faith and was the your best effort.

This restriction does not apply to the
filing of a Chapter 13 after any prior bankruptcy.

The court may deny
you discharge of all debt if you attempted to
hinder, delay or defraud a creditor when you
transferred, removed, destroyed, mutilated, or
concealed property within one year prior to the
filing of your Chapter 7 petition.

The trustee may
recover the property from the person to whom you
transferred it.

A total of $600 or
more in money or property which is paid to a
creditor that is a relative or insider (certain
business associates) within a year prior to filing
is a preference. The Trustee may recover
preferences and divide the money between all
creditors.

In Chapter 13, you
may be able to prevent the trustee from going after
the relative by increasing the amount paid into your
plan.

You may not file any
bankruptcy if you filed a previous bankruptcy which
was dismissed in the preceding 180 days either (1)
on the court's order because of your willful failure
to obey orders of the court or to appear in court
when required; or (2) at your request after the
filing of a request for relief from the automatic
stay.

You must be a
resident in the state in which you are filing for
the last 90 days. If you have not resided in
the state that long, you can only file in the state
where you have resided, or which has been your
principal place of business or which has been the
location of your principal assets for the majority
of the last 180 days.

Payment to Creditor
is a Preference

A total of $600 or
more in money or property which is paid to a
creditor within 90 days prior to filing is a preference.
The Trustee may recover preferences and divide the
money between all creditors.

In Chapter 13, you
may be able to prevent the trustee from going after
the creditor by increasing the amount paid into your
plan.

Bankruptcy Filed

Commencement of Case

A voluntary
bankruptcy is commenced when you file a petition
with the Bankruptcy Court requesting protection from
your creditors under Chapter 7 or Chapter 13.
A husband and wife may file one petition together
and commence a joint case.

The filing also puts
a stay under 11
U.S.C. §362 into effect prohibiting collection
actions.

Within 15 days after
filing the Chapter 7 or Chapter 13 petition that
commenced your case, you must file schedules listing
your assets and liabilities, your current income and
expenditures, executory contracts and unexpired
leases, and a statement of your financial affairs.

In Chapter 13, the
Plan must also be filed within 15 days after the
Bankruptcy was filed. The plan provides for
submission of future income and the treatment of
your creditors, specifying when and how much each
kind of creditor will receive.

Approximately 18 days
after your case is commenced, the court mails a Notice
of Commencement of Case to you and to the
creditors you have included in your mailing
list. The notice contains meeting date,
deadlines for objections to discharge and for filing
Proofs of Claims.

Within 30 days after
filing the Chapter 7 petition that commenced your
case (or before the § 341 meeting if that is
earlier), you must file a Statement of Intention
indicating whether you will be surrendering or
keeping property secured by consumer debt. If
you are keeping secured property, you will need to
indicate whether you intend to: (1) reaffirm
the debt and continue to make the payments remaining
obligated for the balance of the debt, or (2) redeem
the property by immediately paying the value of the
property and receive a discharge for the balance of
the debt.

A copy of the Statement
of Intention must be served on the trustee and
the creditors named in the statement on or before
the filing of the statement.

You must make your
first payment under the Chapter 13 Plan
within 30 days after the plan was filed.

If your plan was
filed with the petition which commences your case,
your first payment is due within 30 days of the
start of the case. Since the plan must be
filed within 15 days after the commencement of your
case, the latest date you may start making payments
is 45 days after the filing of the case.

Section 341 (the
symbol "§" means section) of the
Bankruptcy code requires the Trustee to preside at a
meeting of creditors within a
"reasonable time." This meeting is
usually held approximately six weeks after
Bankruptcy is filed.

You (as the debtor in
a Bankruptcy case) are required to attend this
meeting and testify under oath, but most creditors
do not come to the meeting. The failure of
creditors to attend the meeting does not effect
their right to challenge the discharge in a Chapter
7 or to object to the plan in a Chapter 13. If
you do not attend, your case will be dismissed.

Chapter 7:
Deadline in Chapter 7 to perform under Statement
of Intention

In Chapter 7, within
45 days after you filed Statement of Intention,
you are to perform as you indicated. In
that statement, you were required to state whether
you would be surrendering or keeping property
secured by consumer debt. If you were keeping
secured property, you would have indicated whether
you intended to: (1) reaffirm the debt and
continue to make the payments remaining obligated
for the balance of the debt, or (2) redeem the
property by immediately paying the value of the
property and receiving a discharge for the balance
of the debt.

Deadline for
creditors or Trustee to object to claim of exempt
property

Creditors and the
Trustee have until 30 days after the conclusion
of the creditor's meeting under § 341 to object to
the property you have claimed as exempt in Schedule
C. While most § 341 meetings are concluded on
the same day they are set, it is not unusual for a
meeting to be continued to a subsequent date, which
will extend the time that creditors have to object.

Chapter 7:
Deadline in Chapter 7 for objection to discharge of
a particular debt under §523(c)

Creditors have until
60 days after the first date set for creditor's
meeting under § 341 to file a complaint under §
523(c). § 523(c) allows creditors to object
to the discharge of debts which were obtained by
false pretenses, a false representation, or actual
fraud; debt from fraud or defalcation while acting
in a fiduciary capacity, embezzlement or larceny;
debt for willful and malicious injury; and debt
incurred in a divorce or separation (other than
child support and spousal maintenance which are not
discharged even without an objection to discharge).

The most common
objection to discharge of a debt is based on §
523(a)(2). This section presumes that charges
totaling $1,000 or more to one creditor within 60
days before the case is commenced are not
discharged, if they are for luxury goods or
services, or cash advances. This section also denies
a discharge to debt extended because the creditor
relied upon a credit application which was
materially false.

Chapter 7:
Deadline for objection to discharge of all debt
under §727(a)

Creditors have until
60 days after the first date set for creditor's
meeting under § 341 to file a complaint under §
727(a). § 727(a) allows object to the
discharge of all debts because of misconduct
including transfer, destruction or concealment of
property; concealment, destruction, falsification or
failure to keep financial records; making false
statements; withholding information; failing to
explain losses; failure to respond to material
questions; having received a discharge in a prior
case filed within the last 6 years.

Chapter 7:
Deadline for U.S. Trustee or court to move to
dismiss case for substantial abuse under §707(b)

Until 60 days after
the first date set for creditor's meeting under §
341, the U.S. Trustee or the court may move to
dismiss a case in which debts are primarily consumer
debts if it finds that the granting of relief would
be a substantial abuse of the provisions of Chapter
7.

Substantial abuse has
been interpreted by a number of courts to mean
having sufficient disposable income to pay more than
half of your unsecured debt over the next 36 months.

Court rules require
that the discharge be entered "forthwith"
after the expiration of the time for objecting to
discharge or moving to dismiss the case. The time
for those objections expires 60 days after the first
date set for creditor's meeting.

The discharge is not absolute or final. The
trustee can ask that the discharge be set aside if
you do not turn over non-exempt property, and for
other violations of the debtor's duties.

A creditor, other
than a governmental unit, must file its Proof of
Claim within 90 days after the after the first
date set for creditor's meeting under § 341 in
order to share in payments from the estate.

Unless all allowed
claims are paid sooner, plan payments must continue
for the three-year period beginning on the date that
the first payment is due under the plan.
During this period, the plan must provide that all
of the debtor's projected disposable income is
committed to the plan. (This requirement comes
into effect only if the trustee or the holder of an
allowed unsecured claim objects; it has been our
experience that the trustee will always object.)

The maximum length of
a Chapter 13 plan is five years beginning on the
date that the first payment is due under the
plan. After the third year of the plan, the
plan no longer needs to provide that all of the
disposable income be committed to the plan.

New
BankruptcyLaw: Congress passed
sweeping changes to the Bankruptcy Code
restricting the availability of a discharge
in Chapter 7 bankruptcy and substantially
reducing the relief available in Chapter 13
bankruptcy. The bill became effective
October 17th, 2005.

It's impossible to predict with certainty
how the changes reviewed below will be
implemented and interpreted by bankruptcy
trustees and judges. What is clear is that
under the new law there will be far more
hoops for the debtor to jump through to get
a fresh start. The process will be more
expensive for the debtor and the court
system, and there will be an extended period
of uncertainty as the players work their way
through the changes.

Eligibility for Bankruptcy

Past: The debtor could elect to
file either a Chapter 7 or Chapter 13
bankruptcy. Debtors whose debts were
primarily consumer debts were subject to
scrutiny by the trustee or the judge as to
whether they had enough disposable income
that permitted them to file Chapter 7 would
be a “substantial abuse”. If so, the case
could be dismissed or the debtor could
convert to a Chapter 13 which repays debts,
usually only in part. There were caps on the
amount of secured and unsecured debt a
debtor could have and file Chapter 13.

Current: A "means test"
determines whether a debtor can file Chapter
7 bankruptcy. Anyone with an income below
the median income for families of the
debtor’s size in their state are exempt from
the means test. For those debtors above the
median income, a presumption of abuse on the
part of the debtor, which the debtor has the
burden of disproving.

In applying the means test, the average
income over the past 6 months is used,
regardless of present actual income.
Mortgage and car payments, and the amount
necessary to pay back taxes and past due
support, are subtracted. Private and public
school expenses for children are limited to
$1,500 per child per year. If, after
deducting those amounts and the living
expenses provided in the IRS’s national
collection standards, the debtor could pay
at least $6,000 to unsecured creditors over
5 years, the debtor’s only option is Chapter
13 bankruptcy.

Barriers to Filing

Past: Any individual who was
willing to submit to the jurisdiction of the
bankruptcy court could file a bankruptcy
case. Legal counsel was widely available and
subject to fierce price competition.

Current: Debtors must obtain
approved credit counseling before they
can file bankruptcy. Unfiled tax returns
must be filed within weeks of the
commencement of the case. Lawyers for
debtors, but not lawyers for creditors, face
personal liability for monetary sanctions if
their client is not eligible for Chapter 7
bankruptcy or the facts in the petition are
later disproved. The filing fees for
bankruptcy cases typically have increased.
Legal fees charged by attorneys who remain
in the field are expected to increase
substantially.

Chapter 13

Past: Debtors who elected Chapter
13 bankruptcy were able to cure mortgage
arrearages, catch up on back taxes,
discharge debts not dischargeable in Chapter
7 bankruptcy, and keep nonexempt assets.
Secured debts such as car loans could be
reduced to the present value of the
collateral. The debtor’s disposable income
for determining how much of the pre-filing
debt must be repaid was determined by the
judge’s assessment of what living expenses
were necessary and reasonable for this
debtor and his family. Plans ran three years
unless the debtor proposes a longer plan,
which could not exceed 5 years.

Current: Disposable income is
calculated using the IRS collection
standards, rather than allowing the judge
flexibility. Strip down of liens on cars is
limited to vehicles purchased more than 2 ½
years before the bankruptcy. Debtors whose
gross income exceeds the state median are
required to remain in Chapter 13 for five
years. It is still unclear how the means
test guaranteeing a certain level of
repayment to unsecured creditors will
intersect with the debtor’s efforts to cure
mortgage arrears and prevent foreclosure on
his or her home.

Multiple Bankruptcies

Past: Debtors could file a Chapter
13 bankruptcy immediately following a
chapter 7 bankruptcy to pay debts that
survived a Chapter 7 bankruptcy discharge. A
Chapter 7 discharge was available in the
seventh year following a previous discharge.
Debtors whose Chapter 13 cases were
dismissed short of discharge could refile a
bankruptcy case, so long as the new case is
filed in good faith.

Current: The interval between
Chapter 7 discharges has increased by two
years. A Chapter 13 may not be filed within
4 years of a Chapter 7 discharge. No change
is made on the debt caps for eligibility for
Chapter 13, creating a class of debtors with
larger debt totals, for whom only the more
expensive and complex Chapter 11 bankruptcy
is available.

Automatic Stay

Past: The "automatic stay"
uniformly stopped collection actions against
the debtor or his property, and requires the
creditor who wants to continue enforcing
state law rights to get permission from the
bankruptcy court.

Current: The automatic stay is
hedged or conditioned in many circumstances,
creating less certainty about immediate
protection of the debtor. Filing bankruptcy
will not stay acts to collect back support,
including revocation of driver’s licenses or
professional licenses. Creditors omitted
from the official list of creditors are free
to continue collection action even if they
have actual notice of the bankruptcy. If a
prior case is dismissed, the duration or
even the existence of a stay is limited in
subsequent cases. Landlords are freed to
complete evictions, even when the
tenant-debtors are paying rent.

Discharge of Debts

Past: Debts not dischargeable in
Chapter 7 bankruptcy included recent taxes,
family support and student loans, plus a
group of debts that may be nondischargeable
if the creditor proves in bankruptcy court
that the debt was incurred by various kinds
of dishonesty or that the debt was created
in a divorce proceeding. Chapter 13 provided
for a broader, “ super discharge”, allowing
discharge of more kinds of debts in exchange
for undertaking a repayment plan.

Current: More debts are
nondischargeable in Chapter 7 bankruptcy,
including privately funded student loans,
all debts arising from divorce and debts
incurred to pay nondischargeable debts such
as taxes or support. Presumptions of fraud
have been broadened to include purchases of
“luxury goods” of $500 within 90 days of
filing or cash advances of $750 or more
within 70 days of filing. The Chapter 13
discharge doesn't cover taxes for which the
taxing authority didn’t file a timely claim,
unfiled tax years or debts tinged with
dishonesty.

General Observations

The proposed law imposes new duties on
debtors and their attorneys, and failure to
timely perform these duties will result in
dismissal of the case or lifting of the
automatic stay. Coupled with the new
limitations on a second filing, the
consequences of mistakes, inattention, or
misfortune become far more serious, as the
court and the trustee have less discretion
to deal with human frailty and intervening
circumstances. The presumption that the
debtor is entitled to relief from his debts
is effectively replaced by presumptions that
the debtor’s filing is abusive until the
debtor proves otherwise.

This overview looks at those aspects of
the bill that impact the average debtor.
Exactly how it actually will work, or not
work, will only become known as debtors,
lawyers, trustees, and judges try to apply
it to the real world of consumers and their
debts.

Cathy Moran is a business and
bankruptcy lawyer in the San Francisco Bay
Area, and was one of the first bankruptcy
specialists certified by the California
State Bar. Her Web site
Bankruptcy in Brief includes much
information on bankruptcy.